Figured out a way to get this working - appears how I had declared my display template was what was causing the problem.

Needed to look like this:

@using EPiServer.Core
@model XhtmlString

@{
    Html.RenderXhtmlString(Model.OptimizeImages());
}

I wasn't using Html.RenderXhtmlString before. The OptimizeImages function is the custom bit I've used to scan for images and modify the src.

using EPiServer.Core;
using HtmlAgilityPack;

    public static class XhtmlStringHelper
    {
        public static XhtmlString OptimizeImages(this XhtmlString html)
        {
            if (html == null)
                return html;

            var doc = new HtmlDocument();
            doc.LoadHtml(html.ToHtmlString());

            var imgs = doc.DocumentNode.SelectNodes("//img");
            if (imgs == null)
                return html;

            foreach (var img in imgs)
            {
                var width = img.Attributes["width"].Value;
                var height = img.Attributes["height"].Value;
                var src = img.Attributes["src"].Value;

                img.SetAttributeValue("src", $"{src}?width={width}&height={height}&mode=stretch");
            }

            return new XhtmlString(doc.DocumentNode.OuterHtml);
        }
    }

Will need a bit of modifying to just check that the attributes existing rather than assuming but seems to do the job.

Would love to hear if anyone has approached this sort of thing in a different way.

I blogged about this some time ago: https://www.dcaric.com/blog/resizing-images-in-episerver

Ah, if only I'd found that when Googling earlier. Thanks for sharing. Like the idea of include the max width and height just in case.

We were already been handling images in blocks it was just the rich text we hadn't, and wasn't quite sure the best way to do it. That said I might review how we've address those after seeing you post, some great ideas.